2018: Data leaks set to boost new law targeting offshore tax evasion

As a new year rolls in, what could become of data leaks and the war against tax evasion in the United Kingdom?

One of the major developments in 2017 was the Paradise Papers, which came a year after the Panama Papers, data leaks that centred on the records of law firms Mossack Fonseca and Appleby respectively.

The information revealed strong links between their super-rich clients and offshore jurisdictions such as the British Virgin Islands, Cayman Islands, Jersey and the Isle of Man.

Also key on the UK front was the Criminal Finances Act, which seeks to crackdown on tax evasion, and will enable British authorities to extend their reach across the country’s borders, netting firms and facilitators of tax dodging schemes in offshore and other jurisdictions.

The increase in the release of mass data leaks is set to help British authorities with evidence to investigate or prosecute tax dodgers under the new law, according to a UK legal expert.

After many years of vowing to ‘clean up’ offshore tax evasion linked to the UK, British authorities have made some progress but are still challenged by the complex nature of offshore schemes.

In a September 2017 parliamentary statement, Mel Stride, UK Financial Secretary to the Treasury, explained that: “the systems used to launder money and evade tax through offshore structures are complex and highly sophisticated.”

However, data leaks may prove very useful to authorities after all, and are already turning out to be a solid source for leads.

UK law enforcement has been able to interrogate and exploit the Panama Papers-related data, “identifying previously unknown individuals, companies and properties, making links between them and providing intelligence and investigative opportunities,” Stride said.

The Criminal Finances Act will likely add to the authorities’ muscle.

Roger Best, partner at Clifford Chance, said: “The increase in leaks and disclosures around the activities of offshore law firms, in particular the activities of their underlying clients, would result in far more information provided than is currently available to UK authorities on which to build an evidential case against offshore corporations for failing to prevent the facilitation of tax evasion.”

The increase in international cooperation in the form of provisions for disclosure of tax information between authorities under the common reporting standard will also help tax authorities get more information about clients, Best said.

Organisations, including law firms, operating in or with offshore jurisdictions are likely to look at how the Criminal Finances Act will impact their operations.

“Companies should assess whether they are at risk of exposure to the offence,” said Best, “For example, there is a risk that arises where they are involved in dealing with people who assist people in relation in relation to tax efficiency.”

“Having assessed whether their scope of businesses presents that basic risk, then, if they think that there is that basic risk, they need to carry out a more detailed risk assessment and then to draw up reasonable procedures to address that risk, which would essentially be around building a compliance framework.”

Also of interest regarding data leaks in 2018, is Appleby’s lawsuit against the BBC and Guardian over the publication of the Paradise Papers, an issue KYC360 is looking to cover in the near future.

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